Tag Archives: transaction cost

Under the heading “Collaborating Across Boundaries“, Tessa Lau is contemplating which tools the computing community could offer to alleviate the challenges associated with distributed projects: It’s becoming harder and harder to cooperate – in my experience largely (though not exclusively) within the same company – with team members because people are chosen by expertise, never mind where they live.

On the same day, the social network XING reflects on this year’s nobel prize for economics: “XING und der Nobelpreis” (German :-/) explains that Oliver Williamson received the nobel prize this year for his work on transaction cost theory, the fact that the cost of conducting a transaction is one of the factors causing corporations to exist. I understood it like: Companies exist among others because they save transaction cost as compared to a same-sized community of freelancers. In a company, one doesn’t have to worry much about customers or suppliers, they are just there. As one might expect, there is a nice article at Wikipedia.

Social networks nowadays have a similar role for freelancers: They reduce transaction costs for individuals. That’s the link between XING and this year’s nobel prize.

Combining the two: geographic distribution imposes transaction costs that hit large cooperations about as much as individuals, but corporations are more rigid: while an individual could choose the second-best but geographically close specialist, a company has a certain department, say, in China. And if we are honest to ourselves: almost all of us are second best most of the time – is it really worth the effort? So, for knowledge workers: is geographic distribution a factor creating large companies, or is it rather inhibiting large companies?

Could this be the dawn of a new age of small, regionally oriented IT companies?